It looks like the problems plaguing Poseidon Concepts (PSN-T) may be part of a wider slowdown hitting Canada?s oil services sector.
When Poseidon Concepts Corp. announced its third-quarter earnings on Wednesday, to say the results disappointed market watchers would be an understatement. Investors punished the Calgary-based fluid storage provider?s stock with a fury one might expect from the Greek God of the Sea, which is the basis for the company?s name.
By midday Thursday, shares of Poseidon where down more than 55 percent, carving upwards of $500 million from the company?s market cap and knocking it out of the billion-dollar valuation club.
The weaker-than-expected results prompted an instant downgrade from RBC Capital Markets and at least four other brokerages, with RBC moving its opinion on the company to "Sector Perform" from "Outperform" early Thursday morning. RBC also slashed its price target to $10 per share from $18 previously.
"We do expect the stock to be under a fair amount of pressure in the near term," Dan MacDonald, a Calgary-based oil and gas analyst for RBC, said Thursday morning in a note to clients.
To be fair, though, Poseidon is not entirely to blame for its misfortune. In a message to shareholders, the company points to an "industry-wide slowdown" as the real culprit.
"Throughout the North American oilfield service industry, several fracturing-related and ancillary rental services experienced significant spot market pricing declines, and Poseidon was not completely immune to the adverse conditions," the company said.
"It is definitely quiet out there," says Mark Salkeld, president of the Petroleum Services Association of Canada, in a telephone interview Thursday morning.
"It is flat overall, producers that can are holding on to their cash -- there is also concern with how the U.S. will handle the fiscal cliff -- and that rolls down to outfits like Poseidon,? Salkeld says, noting the company is still in discussions to become a PSAC member.
"But it is not that bad,? he adds.
Indeed, as bad as the situation might appear for the association?s 250-company-strong membership, Salkeld has good reason for optimism. Alberta is expected to see a 3-percent increase in drilling activity next year and "Manitoba is a really exciting spot," Salkeld says, noting an expected 5-percent increase for 2013 in Canada?s Easternmost Prairie province.
It is true that major producers like Suncor, Canadian Natural Resources and Talisman have all cut their remaining 2012 capital spending budgets by substantial margins over the last few weeks, but their wallets are expected to open wider once commodity prices begin to recover next year. In the meantime, service firms like Poseidon are focusing on new products, new services and even new geographies in an attempt to weather the storm.
Longer-term, Salkeld notes growing operations in the Maritimes, the far North and progress toward LNG export capacities should buoy the industry over a 5-to-10 year period. Even RBC?s MacDonald sees Poseidon rebounding soon.
"Post a likely knee-jerk reaction today to the large Q3/12 miss, we would expect the stock to perform in-line with its peers through 1H13. The stock should continue to appeal to income-oriented investors."
Source: http://www.bnn.ca/Blogs/2012/11/15/Energy-slowdown-hits-Poseidon.aspx
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